After years of wrangling and delays, Oscar-winning director Peter Jackson finally called action on his latest Tolkien epic, The Hobbit.

The $US500 million project, a two-part prequel to The Lord Of The Rings trilogy, began filming in New Zealand today, Hollywood studio Warner Brothers said.

"Production has commenced in Wellington," the studio said in a statement.

The Hobbit has been dogged by problems, prompting British actor Martin Freeman, who plays the title character Bilbo Baggins, to acknowledge last month that he had heard rumours it was jinxed.

Freeman, best known for his work in The Office, will join Cold Feet actor James Nesbitt on the set, with Cate Blanchett (Galadriel), Ian McKellan (Gandalf) and Elijah Wood (Frodo) reprising their Lord Of The Rings roles.

The most serious threat to the movies erupted last October, when actors' unions slapped a global boycott on the production in a dispute over pay and conditions, prompting Jackson to look at shifting filming from New Zealand.

Warner Brothers finally agreed to keep the production in the country, which provided a stunning backdrop to the Rings movies, after the government changed employment laws and gave the studio millions of dollars in tax breaks.

Before that, the project was stalled for years amid rows over distribution rights, reported budget blowouts and financial woes at the MGM studio, prompting director Guillermo del Toro to quit last year.

It even became embroiled in a race row last November, when a casting agent was sacked for telling a woman with an Indian background that she was too dark to be a Hobbit.

Then, with Jackson confirmed as del Toro's replacement in the director's chair and cameras ready to roll, the New Zealander suffered a perforated ulcer and was rushed to hospital for emergency surgery, leading to more delays.